Friday, September 28, 2007

Mr. Smith Goes to Washington…to Lobby for the World’s Largest Unregulated Monopoly

It happens only occasionally: something so beyond the pale of logic and reason that further commentary is barely necessary.

But it does happen, and it happened yesterday: Microsoft, of all companies, sent its General Counsel to the United States Senate to beg the government to stop Google, the world’s most successful internet search company, from buying a small, unrelated banner ad company, for the sake of unfair competition and monopolistic business practices.

How could anyone make this up?

It is a fact. Microsoft—the world’s largest and most successful unregulated monopoly—is asking our government to stop Google from continuing to beat Microsoft in the free marketplace.

Here are Microsoft General Counsel Brad Smith’s own words:

Now, already Google is the dominant company for one of the two main types of online advertising, search online ads. Roughly 70 percent of global spending on searchbased advertising today flows through Google's AdWords service.

Apparently nobody in Redmond informed Mr. Smith that roughly 95% of global spending on desktop computer operating software flows through Microsoft's bank account.

Free of that simple incontrovertible fact, Mr. Smith proceeded to pile one whopper on top of another:

If Google is allowed to proceed with this merger, it will also obtain a dominant gateway position over the other main type of online advertising, nonsearch ads the nonsearch ads that are displayed on Web sites that we visit. Today, Google and DoubleClick are the two largest competitors in this area. And as I hope we will discuss more, they are competitors in this area. And yet combined, Google will account for nearly 80 percent of all spending on nonsearch ads served to third party Web sites.

Once again, nobody in Redmond told Mr. Smith that both Google and DoubleClick became dominant in a free marketplace, with competitive products against bigger, better-funded companies, including Mr. Smith's employer, the World’s Largest Non-Utility Monopoly.

Untethered to the business history of his own company, Mr. Smith wound it all up with a sort of uber-whopper, and I quote:

In short, if Google and DoubleClick are allowed to merge, Google will become the overwhelmingly dominant pipeline for all forms of online advertising.

Now, this merger will almost certainly result in higher profits for the operator of the dominant advertising pipeline, but we believe it will be bad for everyone else. It will be bad for publishers, it will be bad for advertisers and, most importantly, it will be bad for consumers.

In other words, Mr. Smith is suggesting, if the deal goes through, Google would become like Microsoft has been operating for the last twenty years!

I would hope somebody in that Washington Senate chamber recalled the honor roll of companies that Microsoft put out of business by leveraging its own monopoly of the desktop operating system.

If they’ve forgotten, I’d be happy to dig through old trade confirmations from the days when shorting whatever NASDAQ-listed company Microsoft had targeted for destruction was like shooting fish in a barrel.

From memory, they include but are not limited to Lotus, Netscape, Quarterdeck, Software Publishing, and Novell.

Readers with longer memories than mine are free to add to the list.

Whatever happens to the Google/DoubleClick deal, something tells me nobody's going to be making a feel-good movie out of this Mr. Smith's visit to Washington.

Jeff Matthews
I Am Not Making This Up

© 2007 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


CurmudgeonlyTroll said...


Digital Research?




Sybase on Intel?

TheColonel said...

My short list includes the Berkeley TCP/IP protocol stack ( software for the internet), VISIO (drawing program), and the user interface for Windows , borrowed/stolen from the MAC/NeXT computer software.

Microsoft's genesis was largely due to Bill Gates' Mom, who sat on a charitable board with Mr. Opel,the IBM honcho at the time. When notified of IBM's need for an operating system, Mrs gates son, Bill bought an operating system named QDOS (quick and dirty disk operating system), and the rest is history. Far more promising computers/software then were overwhelmed by the IBM/Microsoft/Micrsoft marketing juggernaut.

My apologies for boring you. Robert X. Cringely covers the subject well in his tome, "Accidental Empires".

Sam Antar said...

"It happens only occasionally: something so beyond the pale of logic and reason that further commentary is barely necessary."

Jeff, have you forgotten too soon the doubletalk that is spewed out by certain CEOs on a continuous basis?


Sam E. Antar (former Crazy Eddie CFO & convicted felon)

MattF said...

Another bit worthy to add...from WebProNews...

Google, DoubleClick On Defense Against Senators

David A. Utter | Staff Writer

The main defense put forth by Google and supporters of its proposed acquisition of DoubleClick holds that the two companies do business differently when it comes to advertising.

One company sells ads, one delivers them. In a nutshell, that's Google's view of the DoubleClick deal, and there isn't any reason for people to be so fired up about it.

In testimony before a Senate Judiciary subcommittee, Google and its main DoubleClick detractor, Microsoft, fenced over the subtleties of that characterization. The Los Angeles Times noted how the tech companies resorted to analogies to help less tech-savvy Senators understand what is taking place. Google's David Drummond and Microsoft's Brad Smith quibbled over the choice of analogy:

"Google is to DoubleClick what, say, Amazon is to FedEx,"
Drummond said. "Amazon sells books. FedEx delivers them. And by analogy, we sell ads, DoubleClick delivers ads. Two different businesses."

"I think a better analogy is this: Google is already Amazon and is already FedEx," (Smith) said. "Now, they're proposing to buy the post office."

Those who participate in Google's AdSense Network may be surprised to learn that Google isn't in the ad-delivery business, especially since AdSense does exactly that.

Drummond acknowledged Google does serve some ads; as Smith demonstrated to the Subcommittee, Google does serve display advertising in the form of image ads on AdSense units.

Buying DoubleClick will let Google reach beyond its AdSense partners to hit the screens of more Internet users. Microsoft wanted DoubleClick for the same reason, but was rebuffed in its advances on the company.

As far as the antitrust implications of Google's purchase, the Federal Trade Commission will have the final say on that. The group likely listens to suggestions from its friends in the legislative branch, so Senators who feel strongly about the merger may be able to influence the FTC's decision making.

In addition to the two top lawyers from Google and Microsoft, the Subcommittee took in other testimony. Thomas Lenard of the Progress & Freedom Foundation suggested that government interference with the evolving online market posed more of a consumer threat than a Google and DoubleClick merger.

Lenard echoed Drummond's point about Google and DoubleClick being in two different businesses, ad sales and ad delivery. "The firms will not gain any market power from this merger since they do not have any business in common," he said.

Precursor's Scott Cleland submitted 64 pages of testimony against the deal. He sees it as "a de facto end-run around media ownership limits," saying that while laws limit TV, cable, radio, and newspapers in their reach, a Google-DoubleClick deal would reach 90 percent of the global online media audience.

"If a business wants its content to succeed on the Internet, it would have no choice but to use the Google-DoubleClick-YouTube online advertising platform," said Cleland. "No real competitive choice."